-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, gZYZ92oC/Ie8+h5sGxl2qcr7OyXHse6W7Wb6L27Zr1TgAmWL/fZlGyZ37Zf9n573 3zP0xkrGf5r60CY8sBX+7g== 0000084278-95-000003.txt : 19950608 0000084278-95-000003.hdr.sgml : 19950608 ACCESSION NUMBER: 0000084278-95-000003 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19941031 FILED AS OF DATE: 19950127 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: ROANOKE ELECTRIC STEEL CORP CENTRAL INDEX KEY: 0000084278 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 540585263 STATE OF INCORPORATION: VA FISCAL YEAR END: 1031 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02389 FILM NUMBER: 95503321 BUSINESS ADDRESS: STREET 1: 102 WESTSIDE BLVD N W CITY: ROANOKE STATE: VA ZIP: 24017 BUSINESS PHONE: 7033421831 MAIL ADDRESS: STREET 1: PO BOX 13948 CITY: ROANOKE STATE: VA ZIP: 24038 10-K 1 10-K FOR 1994 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (x) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended October 31, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ Commission file number 0-2389 ROANOKE ELECTRIC STEEL CORPORATION (Exact name of Registrant as specified in its charter) Virginia 54-0585263 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) P.O. Box 13948, Roanoke, Virginia 24038-3948 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (703) 342-1831 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value (Title of class) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes x No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (x) State the aggregate market value of the voting stock held by nonaffiliates of the Registrant. Aggregate market value at December 30, 1994: $78,428,171 Indicate the number of shares outstanding of each of the Registrant's classes of common stock, as of December 30, 1994. 5,348,909 Shares outstanding Portions of the following documents are incorporated by reference: (1) 1994 Annual Report to Stockholders in Part II. (2) Proxy Statement dated December 12, 1994 in Part III. PART I ITEM 1. BUSINESS (a) General Development of Business. During the fiscal year ended October 31, 1994, the Registrant continued for the most part to operate its business as it has the past four years by manufacturing merchant steel bar products, fabricating open-web steel joists and concrete reinforcing steel, and extracting scrap steel and other materials from junked automobiles. In December 1988, however, the Registrant's rebar subsidiary, RESCO Steel Products Corporation, purchased the assets of another rebar fabricating facility located in Salem, Virginia at a cost of $775,000, doubling its production capacity. Due to adverse economic conditions, and in order to initiate cost saving measures, in November 1990, the two rebar facilities were consolidated into one plant, now operating out of the newer location. Roanoke Technical Treatment & Services, Inc., a Roanoke, Virginia subsidiary, was formed in 1990 to license a process for the treatment of electric arc furnace dust. The subsidiary is awaiting various approvals and permits and is uncertain as to a specific time for start-up. In March 1991, the Registrant closed its merchant steel bar rolling mill located in Salem, Virginia due to a decline in order rates. The products manufactured at the Salem plant were produced at the Roanoke plant, which is considerably more efficient. During fiscal year 1994, the Registrant's auto shredding subsidiary, Shredded Products Corporation, completed construction of its new modern facility in Rocky Mount, Virginia, and in November 1994 began operations at the new locality, at a total investment in excess of $8,000,000 for plant and equipment. The new facility, with its own landfill, is expected to provide considerable savings in waste disposal costs. In addition, cost savings and better metal recoveries are expected from the more technologically advanced equipment. The other subsidiaries of the Registrant, John W. Hancock, Jr., Inc. and Socar, Inc., have had no material changes in operations or in the mode of conducting their business for the past five years. John W. Hancock, Jr. founded both the Hancock joist subsidiary and its parent, Roanoke Electric Steel Corporation, and served on the Registrant's Board of Directors as Chairman of the Executive Committee until his death in March 1994. PART I (con'd.) The Registrant currently anticipates no material changes in operations during the next fiscal year unless there are unforeseen changes in market conditions and profitability. (b) Financial Information about Industry Segments. The Registrant's business consists of one industry segment or line of business, which is the extracting of scrap metal from discarded automobiles and the manufacturing, fabricating and marketing of merchant steel bar products, reinforcing bars, open-web steel joists and billets. The industry segment consists of three classes of products - merchant steel products, fabricated bar joists and reinforcing bars and billets. FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS AND CLASSES OF PRODUCTS OR SERVICES 1994 1993 1992 Sales to Unaffiliated Customers: Merchant Steel $96,782,588 $75,531,009 $66,182,893 Bar Joists & Rebar $78,854,207 $56,503,380 $52,204,497 Billets $40,172,433 $35,259,989 $27,648,911 $215,809,228 $167,294,378 $146,036,301 Net Earnings from Operations $8,766,435 $4,750,106 $2,655,006 Identifiable Assets $140,473,510 $130,620,435 $125,558,910 (c) Narrative Description of Business. (1)(i) The Registrant manufactures merchant steel products consisting of Angles, Plain Rounds, Flats, Channels and Reinforcing Bars of various sizes and lengths. The principal markets for the Registrant's products are steel fabricators and steel service centers. The products are distributed directly to customers from orders solicited by a paid sales staff of the Registrant. PART I (con'd.) The Registrant's subsidiary, Shredded Products Corporation, is involved in the extraction of scrap iron and steel and other metals from junked automobiles and other waste materials. Almost all of the ferrous material is used by the Parent as raw materials. The non-ferrous metals are sold to unrelated purchasers. Two other subsidiaries, John W. Hancock, Jr., Inc. and Socar, Inc., are engaged in the manufacturing of long-and short-span steel joists. Joists are open-web steel horizontal supports for floors and roofs, used primarily in the construction of commercial and industrial buildings such as shopping centers, factories, warehouses, hospitals, schools, office buildings, nursing homes, and the like. Joists are cheaper and lighter than structural steel or reinforced concrete. The joists are distributed by these subsidiaries to their customers from orders solicited by manufacturer's representatives and pursuant to successful bids placed directly by the companies. The Registrant's subsidiary, RESCO Steel Products Corporation, fabricates concrete reinforcing steel by cutting and bending rebars to contractors' specifications. The rebars are distributed to contractors from orders solicited by a paid sales staff and pursuant to successful bids placed directly by the subsidiary. (ii) The Registrant has not recently introduced a new product or begun to do business in a new industry segment that will require the investment of a material amount of assets or that otherwise is material. (iii) The Registrant's main raw material, scrap steel, is supplied for the most part by scrap dealers within a 200 mile radius of the mill. It is purchased through the David J. Joseph Company who are scrap brokers. The Shredded Products subsidiary supplies 8,000 to 11,000 tons of scrap per month. Although scrap is generally available to the Registrant, the price of scrap steel is highly responsive to changes in demand, including demand in foreign countries as well as in the United States. The ability to maintain satisfactory profit margins in times when scrap is relatively high priced is dependent upon the levels of steel prices, which are determined by market forces. Alloys and other materials needed for the melting process are provided by various domestic and foreign companies. PART I (con'd.) Shredded Products Corporation often experiences difficulty in purchasing scrap automobiles at a satisfactory level. Competition from an increasing number of shredding operations and reluctance by dealers to sell scrap automobiles due to market conditions are the main causes. High offering prices generally increase the supply; however, the increased cost to produce sometimes is very competitive with the price of similar scrap that can be purchased on the outside. Substantially all of John W. Hancock, Jr., Inc.'s steel components are purchased from the Parent, which is located conveniently nearby and, therefore such components are generally available to the Company as needed. RESCO Steel Products Corporation purchases most of its steel components from suppliers within its market area, determined mainly by freight cost. Such components would be generally available to the Company, since the Parent could produce and supply this raw material, as needed. Socar, Inc. receives most of its raw steel material from the Parent and other nearby suppliers, the determinant usually being freight cost. The availability of raw materials is not of major concern to the Company, since the Parent could supply most of its needs. (iv) The Registrant currently holds no patents, trade marks, licenses, franchises or concessions that are material to its business operations. (v) The business of the Registrant is not seasonal. (vi) The Registrant does not offer extended payment terms to its customers nor is it normally required to carry significant amounts of inventory to meet rapid delivery requirements of customers; although, at times market conditions have required the stockpiling of popular bar products for rapid delivery. Working capital practices generally remain constant during the course of business except when the Registrant determines it to be advantageous to stockpile raw materials due to price considerations. (vii) During fiscal year 1994, sales (tons) by the Registrant to John W. Hancock, Jr., Inc., Socar, Inc. and RESCO Steel Products Corporation, PART I (con'd.) wholly-owned subsidiaries, were approximately 8%, 7% and 1% of the Registrant's total sales (tons), respectively. The largest nonaffiliated customer purchased approximately 24% of total sales (tons) ---13% of total sales (dollars). Alternative marketing arrangements were available to the Registrant, so that the loss of this nonaffiliate would not have had a materially adverse effect on the Registrant and its subsidiaries taken as a whole. (viii) The Registrant is of the opinion that the amount of its backlog is not generally material to an understanding of the business. All backlog is shipped within the current fiscal year. (ix) None of the business of the Registrant is subject to renegotiation of profits or termination of contracts or subcontracts at the election of the Government. (x) The Registrant competes with steel-producing mills of similar size operative within its market region and also larger mills producing similar products. The market region in which the Registrant sells its products consists of the majority of states east of the Mississippi River. Price, including transportation cost, is the major determinant in securing business. Even though economic recession had intensified competition into the mid - 1980's, selling prices and demand improved substantially in 1988, easing competitive conditions within the industry. The same conditions continued during most of 1989; however, by year end prices and demand were declining. In 1990, selling prices dropped further with a softening in demand. This trend continued through most of 1991 with sharp declines in selling prices due to poor demand and excess inventories and capacity at most mills, although by year end prices rose slightly. In comparison to the 1991 recession lows, order rates in 1992 showed some improvement while selling prices remained flat. In 1993, market conditions and demand improved significantly, while industry-wide selling prices increased to offset higher raw material costs. Demand in 1994 was fueled by continued improvement in business conditions and economic growth, with higher raw material costs again forcing selling prices upward, although some of the increased selling prices were demand driven. PART I (con'd.) The joist business is highly competitive. Due to similarity of product, relatively small price differences are often determinative in placing business. Ability to meet the customer's time requirements for delivery also is important in securing business. Competing successfully becomes more difficult with the distance to point of delivery due to transportation costs. In 1988, reduced bookings were caused by intensified competition; however, higher raw material costs brought selling prices up, but not enough to maintain profit margins. Although 1989 was still very competitive, selling prices and order rates increased and profit margins improved slightly. In 1990, selling prices and order rates declined as a result of a weakened construction industry, causing increased competition. The severely depressed activity in the construction industry, due to overbuilding, again in 1991 resulted in drastic declines in selling prices and demand. In spite of depressed conditions, 1992 brought improved shipments due mainly to successful job bidding; however, in order to book a higher percentage of quotations, selling prices consequently suffered. Again in 1993, successful job bidding resulted in improved shipment levels, while higher raw material costs pushed selling prices upward, even though the construction industry remained depressed and highly competitive. In 1994, an easing of competitive conditions within the construction industry led to increased shipment levels, while selling prices were again forced upward by higher raw material costs. Billets are semi-finished products used by the Registrant in its rolling mill process to manufacture various merchant bar products. With the addition of new casting equipment in recent years, the Registrant has anticipated a growing billet market of nonaffiliated customers who further fabricate the billets for various end uses. In 1988 and 1989, billet sales improved significantly due to higher selling prices and increased order rates. Competition within the industry caused a drop in selling prices in 1990, with demand slowing. In 1991, selling prices trended further downward, while order rates fell due to the sagging economy. Billet sales improved significantly in 1992 as a result of increased domestic demand and entry into the much more competitive export markets, although selling prices still continued to slump. Again in 1993, increased export PART I (con'd.) business and improved domestic demand resulted in significantly higher billet shipments. Selling prices also rose in reaction to higher scrap steel costs. Shipments of billets declined slightly in 1994 due to a lack of export shipments, although domestic shipments improved significantly. While the export markets were much more competitive, domestic demand improved dramatically. Higher billet prices were also driven by higher scrap steel costs, but the increased domestic billet shipments, which bring a higher price, also contributed. (xi) During the last three fiscal years, the Registrant was not involved in any material research and development activities. (xii) The Registrant has been notified by the United States Environmental Protection Agency (EPA) and the County of Roanoke of its potential liability and responsibility for materials at a landfill site and adjacent streams near Salem, Virginia. The Registrant has entered into a cost-sharing agreement with the County of Roanoke for response action (cleanup) at the landfill site and filed a plan with EPA for the cleanup of the streams. Total costs to the Registrant in connection with the landfill and streams are uncertain. Provisions were made for $2,000,000 in settlement costs through fiscal year 1994 and are reflected in consolidated liabilities. While the cost of future remedial action or future claims is difficult to project, management believes it would not have a materially adverse effect on the consolidated financial position, results of operations and competitive position of the Registrant. The Registrant currently disposes of the furnace dust through a contract with an approved waste disposal firm. The Registrant believes it is in substantial compliance with applicable federal, state and local regulations. However, future changes in regulations may require expenditures which could adversely affect earnings in subsequent years. The Registrant has constructed over the years pollution control equipment at an aggregate cost of over $7,600,000. Annual operating expenses and depreciation of all pollution control equipment and waste disposal costs are in excess of $4,000,000 in the aggregate. The Registrant is expected to spend approximately $1,000,000 to $2,000,000 PART I (con'd.) for additional pollution control and waste disposal equipment and facilities during subsequent fiscal years. Adoption of the Clean Air Act Amendments of 1990 is not anticipated to have a materially adverse effect on the Registrant's operations, capital resources or liquidity, nor should any incremental increase in capital expenditures occur due to the Act. (xiii) At October 31, 1994, the Registrant employed 499 persons at its Roanoke plant, with no employment at its Salem division, idle since mid-1991. The Registrant's subsidiaries, John W. Hancock, Jr., Inc., Socar, Inc., Shredded Products Corporation and RESCO Steel Products Corporation employed 245, 232, 37 and 43 persons, respectively. (d) Financial Information about Foreign and Domestic Operations and Export Sales. When the Registrant's billet production exceeds its required needs, this semi-finished product is offered for sale. During past years, a portion of the excess billets has been sold to brokers who represent foreign purchasers. In 1992, export (billet) sales to Mexico and Columbia amounted to $2,500,259 and $1,951,636, respectively, near break-even margins. During 1993, export (billet) sales to China and Mexico amounted to $4,485,565 and $ 620,028, respectively, slightly below break-even margins. There were no foreign sales of excess billets or other products during fiscal year 1994. The information required by this paragraph by geographical area, as to foreign and domestic operations, is not provided since it is identical to the table in paragraph (b) with all information pertaining to the United States. ITEM 2. PROPERTIES The Registrant owns 68 acres situated in the City of Roanoke, Virginia, which comprises its main plant, of which 25 acres are used to provide 330,000 square feet of manufacturing space with an annual billet capacity of approximately 600,000 tons. A 30 acre site is owned in Salem, Virginia, of which 10 acres were used to provide 51,355 square feet of manufacturing space, until March 1991, when the plant was idled. The PART I (con'd.) Registrant acquired in 1991 a 447 acre tract of land in Franklin County, Virginia, 100 acres of which was transferred to Shredded Products Corporation in a move of shredding operations from its Montvale location. Part of this new Shredded Products property is being used as an approved industrial landfill. The remaining 337 acres of this land will be marketed as an industrial park for Franklin County. Shredded Products Corporation operates in both Montvale and Rocky Mount, Virginia. The Montvale plant is situated on a 75 acre site owned by the Registrant, approximately 20 acres of which are regularly used in its scrap processing operation, with an annual production capacity of approximately 18,000 tons. The new Rocky Mount facility is located on a 100 acre site owned by Shredded Products Corporation, partially consisting of a 25 acre industrial landfill used for the disposal of its auto fluff, and another 25 acres of which are regularly used in its shredding operation, with an annual production capacity of approximately 150,000 tons. John W. Hancock, Jr., Inc. is located in Roanoke County near Salem, Virginia. The plant is situated on a 37 acre site owned by Hancock, Inc., 17 acres of which are regularly used in its operations. Buildings on the site contain 131,614 square feet of floor space. Socar, Inc. and its subsidiaries are located in Florence, South Carolina, and in Continental and Bucyrus, Ohio. The Florence facility is located on a 28 acre site owned by Socar, Inc., 16 acres of which are regularly used in its operations. Buildings on the site contain 93,359 square feet of floor space. The plant located on a 31 acre site in Continental, Ohio, owned by Socar, Inc., has 81,172 square feet of floor space in manufacturing buildings, situated on 8 acres regularly used in its operations. There is an idle facility in Bucyrus, Ohio, owned by Socar, Inc. (leased to an unaffiliated manufacturer), and located on a 17 acre site, 7 acres of which contain 118,228 square feet of building floor space. RESCO Steel Products Corporation operates from a building containing 43,340 square feet of floor space, located in Salem, Virginia, on a 6.75 acre site owned by RESCO. PART I (con'd.) The various buildings are of modern design, well-maintained, and suitable and adequate for the requirements of the business. ITEM 3. LEGAL PROCEEDINGS A County of Roanoke landfill site, where the Registrant had disposed of furnace dust from 1969 until 1976, was designated on the National Priorities List as a Superfund site in 1989. The Registrant has been notified by the United States Environmental Protection Agency (EPA) and the County of Roanoke of its potential liability and responsibility for materials at the landfill site and adjacent streams. The Registrant has entered into a cost-sharing agreement with the County of Roanoke for response action (cleanup) at the landfill site and is implementing a plan approved by EPA for the cleanup of the streams. Total costs to the Registrant in connection with the landfill and streams are uncertain. Provisions were made for approximately $2,000,000 in settlement costs through fiscal year 1994 and are reflected in consolidated liabilities. While the cost of future remedial action or future claims is difficult to project, management believes it would not have a materially adverse effect on the consolidated financial position, results of operations and competitive position of the Registrant. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of stockholders during the fourth quarter of the fiscal year covered. EXECUTIVE OFFICERS OF THE REGISTRANT Pursuant to General Instruction G(3) of Form 10-K, the following list is included as an unnumbered Item in Part I of this report in lieu of being included in the Proxy Statement for the Annual Meeting of Shareholders held on January 16, 1995. PART I (con'd.) The names, ages and positions of all of the executive officers of the Registrant as of October 31, 1994 are listed below with their business experience with the Registrant for the past five years. Officers are elected annually by the Board of Directors at the first meeting of directors following the annual meeting of shareholders. There are no family relationships among these officers, nor any agreement or understanding between any officer and any other person pursuant to which the officer was selected. Thomas J. Crawford, 39, has served as Secretary of the Registrant since January 1985 and as Assistant Vice President since January 1993; prior thereto, he had served as Manager of Inside Sales since 1984 and as a Sales Representative since 1977. He has 17 years of service with the Registrant. Donald R. Higgins, 49, has served as Vice President - Sales of the Registrant since January 1986; prior thereto, he had served as General Sales Manager since 1984 and Assistant Sales Manager since 1978. He has 29 years of service with the Registrant. John E. Morris, 53, has served as Vice President - Finance of the Registrant since October 1988 and as Assistant Treasurer since 1985; prior thereto, he had served as Controller since 1971. He has 23 years of service with the Registrant. William L. Neal, 67, has served as President of John W. Hancock, Jr., Inc. (wholly-owned subsidiary of the Registrant) since October 1984 and as Director of the Registrant since January 1989; prior thereto, he had served as Executive Vice President since December 1972. He has 39 years of service with Hancock, Inc. Donald G. Smith, 59, has served as Chairman of the Board of the Registrant since February 1989, as Chief Executive Officer since November 1986, as President and Treasurer since January 1985 and as Director of the Registrant since April 1984; prior thereto, he had served as Vice President - - Administration since September 1980 and as Secretary since January 1967. He has 37 years of service with the Registrant. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The specified information required by this item is incorporated by reference to the information under the heading "Stock Activity" in the 1994 Annual Report to Stockholders. ITEM 6. SELECTED FINANCIAL DATA The specified information required by this item is incorporated by reference to the information under the heading "5 Year Summary of Operations" in the 1994 Annual Report to Stockholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The specified information required by this item is incorporated by reference to the information under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the 1994 Annual Report to Stockholders. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The specified information required by this item is incorporated by reference to the information under the headings "Independent Auditors' Report", "Consolidated Financial Statements" and "Notes to Consolidated Financial Statements" in the 1994 Annual Report to Stockholders. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None . PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The specified information required by this item is incorporated by reference to the information under the heading "Information Concerning Directors and Nominees" in the Proxy Statement dated December 12, 1994, as filed with the Commission, or is included under the heading "Executive Officers of the Registrant" in Part I of this 10-K filing. The disclosure required by Item 405 of Regulation S-K is not applicable. ITEM 11. EXECUTIVE COMPENSATION The specified information required by this item is incorporated by reference to the information under the headings "Executive Compensation", "Compensation and Stock Option Committee Report on Executive Compensation", "Compensation Committee Interlocks and Insider Participation", "Performance Graph" and "Board of Directors and Committees - -- Director Compensation" in the Proxy Statement dated December 12, 1994, as filed with the Commission. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The specified information required by this item is incorporated by reference to the information under the headings "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in the Proxy Statement dated December 12, 1994, as filed with the Commission. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The specified information required by this item is incorporated by reference to the information under the heading "Compensation Committee Interlocks and Insider Participation" in the Proxy Statement dated December 12, 1994, as filed with the Commission. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed as a part of this report: (1) The following financial statements are filed as part of the 1994 Annual Report to Stockholders which is incorporated by reference: (a) Consolidated Balance Sheets (b) Consolidated Statements of Stockholders' Equity (c) Consolidated Statements of Earnings (d) Consolidated Statements of Cash Flows (e) Notes to Consolidated Financial Statements (f) Independent Auditors' Report Individual financial statements of the Registrant are not being filed because the Registrant is primarily an operating company and its subsidiaries do not have minority equity interests and/or long-term indebtedness (including current portions) to any person outside the consolidated group (excluding long-term indebtedness which is collateralized by the Registrant by guarantee, pledge, assignment or otherwise), in amounts which together exceed 5 percent of the total consolidated assets. PART IV (con'd.) (2) Pursuant to Regulation S-K the following Exhibit Index is added immediately preceding the exhibits filed as part of the subject Form 10-K: EXHIBIT INDEX EXHIBIT NO. EXHIBIT PAGE (3) (a) Articles of Incorporation 19 Incorporated by Reference (b) By-Laws, as amended 19 Incorporated by Reference (4) Instruments Defining the Rights of 20 Security Holders (10) (a) Executive Officer Incentive Arrangement 21 Incorporated by Reference (b) Roanoke Electric Steel Corporation Employees' Stock Option Plan 21 Incorporated by Reference (13) 1994 Annual Report to Stockholders 22 (21) Subsidiaries of the Registrant 23 (23) Consent of Independent Auditors 24 (27) Financial Data Schedule 25 (b) Reports on Form 8-K. There were no reports on Form 8-K filed by the Registrant during the last quarter of the fiscal period covered by the Annual Report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ROANOKE ELECTRIC STEEL CORPORATION Registrant By: Donald G. Smith Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Director) Date: January 24, 1995 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Name and Title Date Donald G. Smith January 24, 1995 Donald G. Smith, Chairman, President, Treasurer and Chief Executive Officer (Principal Executive Officer, Principal Financial Officer and Director) John E. Morris January 24, 1995 John E. Morris, Vice President - Finance and Assistant Treasurer (Principal Accounting Officer) Charles I. Lunsford, II January 24, 1995 Charles I. Lunsford, II Director Paul E. Torgersen January 24, 1995 Paul E. Torgersen Director William L. Neal January 24, 1995 William L. Neal Director Thomas L. Robertson January 24, 1995 Thomas L. Robertson Director Gordon C. Willis January 24, 1995 Gordon C. Willis Director EXHIBIT NO. 3 (a) ARTICLES OF INCORPORATION Incorporated by reference to the previously filed Form 10-K for October 31, 1990 on file in the Commission office. (b) BY-LAWS, AS AMENDED Incorporated by reference to the previously filed Form 10-K for October 31, 1993 on file in the Commission office. . EXHIBIT NO. 4 INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS Pursuant to Item 601(b) (4) (iii) of Regulation S-K, the Registrant hereby undertakes to furnish to the Commission, upon request, copies of the instruments defining the rights of holders of the long-term debt of Roanoke Electric Steel Corporation and its subsidiaries described in its 1994 Annual Report to Stockholders and Form 10-K. EXHIBIT NO. 10 (a) EXECUTIVE OFFICER INCENTIVE ARRANGEMENT Incorporated by reference to the previously filed Form 10-K for October 31, 1993 on file in the Commission office. (b) ROANOKE ELECTRIC STEEL CORPORATION EMPLOYEES' STOCK OPTION PLAN Incorporated by reference to the previously filed Form 10-K for October 31, 1992 on file in the Commission office. EXHIBIT NO. 13 1994 ANNUAL REPORT TO STOCKHOLDERS EXHIBIT NO. 21 SUBSIDIARIES OF THE REGISTRANT Registrant: Roanoke Electric Steel Corporation Organized Under Subsidiary of Registrant Jurisdiction of Shredded Products Corporation Virginia John W. Hancock, Jr., Inc. Virginia Socar, Incorporated South Carolina RESCO Steel Products Corporation Virginia Roanoke Technical Treatment and Services, Inc. Virginia EXHIBIT NO. 23 DELOITTE & TOUCHE LLP Suite 1401 Telephone: (910) 721-2300 500 West Fifth Street Facsimile: (910) 721-2301 P.O. Box 20129 Winston -Salem, North Carolina 27120-0129 CONSENT OF INDEPENDENT AUDITORS Roanoke Electric Steel Corporation: We hereby consent to the incorporation by reference in Registration Statement Nos. 33-27359 and 33-35243 on Form S-8 of our report dated November 18, 1994, appearing in and incorporated by reference in this Annual Report on Form 10-K of Roanoke Electric Steel Corporation for the year ended October 31, 1994. Deloitte & Touche LLP Winston-Salem, North Carolina January 24, 1994 Deloitte Touche Tohmatsu International EXHIBIT NO. 27 FINANCIAL DATA SCHEDULE EX-13 2 ANNUAL REPORT FOR 1994 RESCO BUSINESS Roanoke Electric Steel Corporation is comprised of the main plant located in Roanoke, Virginia; one division in Salem, Va.; and five wholly-owned subsidiaries with locations in Roanoke, Va., Salem, Va., Montvale, Va., Rocky Mount, Va., Florence, S.C. and Continental, Ohio. The main plant melts scrap steel in electric furnaces and continuously casts the molten steel into billets. The billets are later rolled into Merchant Steel Products consisting of Angles, Plain Rounds, Flats, Channels and Reinforcing Bars of various lengths and sizes. The Salem Division also rolls the above products from billets supplied by the main plant, but has been idle since mid-1991 due to market conditions. Billets are also sold for export and to domestic mills without melt facilities. The finished products are sold to Steel Fabricators and Steel Service Centers; however, a portion is used as raw materials by John W. Hancock, Jr., Inc. and RESCO Steel Products Corporation, two Salem, Va. subsidiaries, and Socar, Incorporated, a subsidiary operating in Florence, S.C. and Continental, Ohio. John W. Hancock, Jr., Incorporated and Socar, Incorporated fabricate open-web steel joists used as supports for roofs, ceilings and floors in the construction of commercial and industrial buildings. RESCO Steel Products Corporation fabricates concrete reinforcing steel by cutting and bending rebars to contractors' specifications. Shredded Products Corporation, another subsidiary with operations in Montvale and Rocky Mount, Va., produces scrap steel and other metals from junked automobiles and other waste materials. All of the ferrous scrap is used by the main plant as raw materials. A substantial amount of non-ferrous metals produced in the process is sold to unrelated customers. Roanoke Technical Treatment & Services, Inc., a Roanoke, Va. subsidiary, was formed in 1990 to license a process for the treatment of electric arc furnace dust. The subsidiary is awaiting various approvals and permits and is uncertain as to a specific time for start-up. 5 YEAR SUMMARY OF OPERATIONS [CAPTION]
YEAR ENDED OCTOBER 31, 1994 1993 1992 1991 1990 Sales $215,809,228 $167,294,378 $146,036,301 $126,977,104 $166,796,343 Gross earnings 33,732,184 22,565,662 17,562,115 12,835,197 30,919,774 Interest expense, net 1,891,263 1,730,822 2,031,154 2,490,129 1,611,145 Income taxes 5,684,150 2,785,168 1,491,474 74,384 5,185,124 Earnings before cumulative effect of change in accounting principles 8,766,435 4,750,106 2,655,006 227,230 8,353,178 Net earnings 11,860,375 4,750,106 2,655,006 227,230 8,353,178 Earnings per share of common stock before cumulative effect of accounting change 1.65 .90 .50 .04 1.57 Earnings per share of common stock 2.23 .90 .50 .04 1.57 Dividends per share of common stock .61 .48 .48 .48 .53 Total assets at year end 140,473,510 130,620,435 125,558,910 124,648,573 129,813,963 Long-term debt at year end 20,729,166 25,521,000 20,486,500 25,452,000 20,907,970
STOCK ACTIVITY The Common Stock of Roanoke Electric Steel Corporation is traded nationally over the counter on NASDAQ National Market System using the symbol RESC. At year end, there were approximately 810 shareholders of record.
1994 1993 STOCK PRICES STOCK PRICES CASH DIVIDENDS HIGH LOW HIGH LOW 1994 1993 First Quarter 16 12 1/4 12 1/4 10 First Quarter $.12 $.12 Second Quarter 18 1/4 15 12 1/2 11 Second Quarter .12 .12 Third Quarter 17 3/4 14 1/2 12 3/4 11 3/4 Third Quarter .12 .12 Fourth Quarter 16 1/2 14 13 1/4 10 3/4 Fourth Quarter .12 .12 Extra .13
INDEPENDENT AUDITORS' REPORT To the Stockholders and Board of Directors of Roanoke Electric Steel Corporation: We have audited the accompanying consolidated balance sheets of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries as of October 31, 1994 and 1993, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended October 31, 1994. These financial statements are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries at October 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended October 31, 1994 in conformity with generally accepted accounting principles. As discussed in Notes 5 and 12 to the consolidated financial statements, effective November 1, 1993, the Corporation changed its method of accounting for income taxes and its method of accounting for postretirement benefits other than pensions. Deloitte & Touche LLP Winston-Salem, North Carolina November 18, 1994 Consolidated Financial Statements CONSOLIDATED STATEMENTS OF EARNINGS Year Ended October 31, 1994 1993 1992 SALES....................................... $215,809,228 $167,294,378 $146,036,301 COST OF SALES............................... 182,077,044 144,728,716 128,474,186 GROSS EARNINGS.............................. 33,732,184 22,565,662 17,562,115 OTHER OPERATING EXPENSES Administrative............................ 14,047,008 11,619,320 10,486,643 Interest, net............................. 1,891,263 1,730,822 2,031,154 Profit sharing............................ 3,343,328 1,680,246 897,838 19,281,599 15,030,388 13,415,635 EARNINGS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 14,450,585 7,535,274 4,146,480 INCOME TAX EXPENSE.......................... 5,684,150 2,785,168 1,491,474 EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES........... 8,766,435 4,750,106 2,655,006 CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR INCOME TAXES............... 3,093,940 - - NET EARNINGS................................ $ 11,860,375 $ 4,750,106 $ 2,655,006 EARNINGS PER SHARE OF COMMON STOCK EARNINGS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE.................... $ 1.65 $ .90 $ .50 CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR INCOME TAXES................. .58 - - NET EARNINGS PER SHARE OF COMMON STOCK.............................. $ 2.23 $ .90 $ .50 CASH DIVIDENDS PER SHARE OF COMMON STOCK.............................. $ .61 $ .48 $ .48
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY Capital in Excess of Treasury Stock Common Stock Stated Retained (At Cost) Shares Amount Value Earnings Shares Amount BALANCE, NOVEMBER 1, 1991............ 5,898,538 $ 691,701 $9,349,429 $52,013,038 597,829 $1,194,868 Stock options exercised... 3,000 21,750 - - - - Net earnings.............. - - - 2,655,006 - - Cash dividends............ - - - (2,545,121) - - BALANCE, OCTOBER 31, 1992............ 5,901,538 713,451 9,349,429 52,122,923 597,829 1,194,868 Stock options exercised... 1,200 8,700 - - - - Net earnings.............. - - - 4,750,106 - - Cash dividends............ - - - (2,546,164) - - BALANCE, OCTOBER 31, 1993............ 5,902,738 722,151 9,349,429 54,326,865 597,829 1,194,868 Stock options exercised... 44,000 608,499 - - - - Net earnings.............. - - - 11,860,375 - - Cash dividends............ - - - (3,254,782) - - BALANCE, OCTOBER 31, 1994............ 5,946,738 $1,330,650 $9,349,429 $62,932,458 597,829 $1,194,868
See notes to consolidated financial statements. CONSOLIDATED BALANCE SHEETS October 31, 1994 1993 ASSETS CURRENT ASSETS Cash and cash equivalents................................. $ 150,036 $ 3,067,418 Investments............................................... 5,333,895 5,243,735 Accounts receivable....................................... 34,840,838 28,074,878 Inventories............................................... 26,969,662 24,069,180 Prepaid expenses.......................................... 1,159,074 1,324,123 Deferred income taxes..................................... 1,215,551 1,318,196 Total current assets................................. 69,669,056 63,097,530 PROPERTY, PLANT AND EQUIPMENT Land...................................................... 3,243,426 3,243,426 Buildings................................................. 15,712,110 15,121,826 Other property and equipment.............................. 94,942,955 93,677,568 Assets under construction................................. 9,664,843 2,897,377 Sub-total............................................ 123,563,334 114,940,197 Less-accumulated depreciation............................. 53,088,234 48,728,280 70,475,100 66,211,917 OTHER ASSETS Unamortized excess of cost of investment in subsidiary over net assets acquired................................. 108,777 295,247 Other..................................................... 220,577 1,015,741 329,354 1,310,988 $140,473,510 $130,620,435 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Current portion of long-term debt......................... $ 4,791,834 $ 4,965,500 Notes payable............................................. 6,500,000 6,000,000 Accounts payable.......................................... 16,560,157 11,595,102 Dividends payable......................................... 1,337,227 636,589 Employees' taxes withheld................................. 254,965 207,069 Accrued profit sharing contribution....................... 3,269,640 1,680,246 Accrued wages and expenses................................ 1,764,863 1,536,585 Accrued income taxes...................................... 685,950 69,538 Total current liabilities............................ 35,164,636 26,690,629 LONG-TERM DEBT Notes payable............................................. 25,521,000 30,486,500 Less-current portion...................................... 4,791,834 4,965,500 20,729,166 25,521,000 POSTRETIREMENT LIABILITIES.................................. 242,000 - DEFERRED INCOME TAXES....................................... 11,920,039 15,205,229 COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 7) STOCKHOLDERS' EQUITY Common stock-no par value-authorized 10,000,000 shares, issued 5,946,738 shares in 1994 and 5,902,738 in 1993.......... 1,330,650 722,151 Capital in excess of stated value......................... 9,349,429 9,349,429 Retained earnings......................................... 62,932,458 54,326,865 73,612,537 64,398,445 Less-treasury stock, 597,829 shares-at cost............... 1,194,868 1,194,868 Total stockholders' equity........................... 72,417,669 63,203,577 $140,473,510 $130,620,435
See notes to consolidated financial statements. CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended October 31, 1994 1993 1992 CASH FLOWS FROM OPERATING ACTIVITIES Net earnings................................................ $ 11,860,375 $ 4,750,106 $ 2,655,006 Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of change in accounting for income taxes............................................ (3,093,940) - - Postretirement liabilities............................... 242,000 - - Depreciation and amortization............................ 7,559,118 7,492,567 7,331,183 Gain on sale of investments and property, plant and equipment...................................... (12,017) (124,088) (7,556) Deferred income taxes.................................... (88,605) 37,082 (332,561) Changes in assets and liabilities which provided (used) cash, exclusive of changes shown separately...... (2,054,358) (2,513,772) (3,774,704) Net cash provided by operating activities................... 14,412,573 9,641,895 5,871,368 CASH FLOWS FROM INVESTING ACTIVITIES Expenditures for property, plant and equipment........... (11,744,913) (5,767,423) (4,748,599) Proceeds from sale of property, plant and equipment.............................................. 189,849 53,900 31,810 Purchase of investments.................................. (3,489,816) (2,159,645) (1,300,402) Proceeds from sale of investments........................ 3,342,493 3,150,546 3,861,800 Other.................................................... 783,577 (115,169) (195,146) Net cash used in investing activities....................... (10,918,810) (4,837,791) (2,350,537) CASH FLOWS FROM FINANCING ACTIVITIES Notes payable - net...................................... 500,000 (6,000,000) 2,500,000 Cash dividends........................................... (3,254,782) (2,546,164) (2,545,121) Increase (decrease) in dividends payable................. 700,638 144 360 Proceeds from exercise of common stock options........... 608,499 8,700 21,750 Redemption of long-term debt............................. (4,965,500) (4,965,500) (3,955,970) Proceeds from long-term debt............................. - 10,000,000 - Net cash used in financing activities....................... (6,411,145) (3,502,820) (3,978,981) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.............................................. (2,917,382) 1,301,284 (458,150) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 3,067,418 1,766,134 2,224,284 CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 150,036 $ 3,067,418 $ 1,766,134 CHANGES IN ASSETS AND LIABILITIES WHICH PROVIDED (USED) CASH, EXCLUSIVE OF CHANGES SHOWN SEPARATELY (Increase) decrease in accounts receivable............... $ (6,765,960) $ (4,001,379) $ (5,336,296) (Increase) decrease in refundable income taxes........... - - 950,072 (Increase) decrease in inventories....................... (2,900,482) (338,492) (2,074,020) (Increase) decrease in prepaid expenses.................. 165,049 (632,862) 118,667 Increase (decrease) in accounts payable.................. 4,965,055 1,911,486 1,118,639 Increase (decrease) in employees' taxes withheld......... 47,896 59,132 3,398 Increase (decrease) in accrued profit sharing contribution........................................... 1,589,394 782,408 897,838 Increase (decrease) in accrued wages and expenses........ 228,278 38,806 144,589 Increase (decrease) in accrued income taxes.............. 616,412 (332,871) 402,409 Total....................................................... $ (2,054,358) $ (2,513,772) $ (3,774,704) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid during the period for: Interest (net of amount capitalized)..................... $ 2,343,960 $ 2,219,291 $ 2,668,219 Income taxes............................................. $ 5,156,266 $ 3,080,957 $ 471,554
See notes to consolidated financial statements. Notes To Consolidated Financial Statements (Note 1) Summary of Significant Accounting Policies Principles of Consolidation The consolidated financial statements include the accounts of Roanoke Electric Steel Corporation and its wholly-owned subsidiaries, Shredded Products Corporation, John W. Hancock, Jr., Inc., Socar, Inc., RESCO Steel Products Corporation and Roanoke Technical Treatment & Services, Inc. ("the Company"). All significant intercompany accounts and transactions have been eliminated. Inventories Inventories of the Company, with the exception of John W. Hancock, Jr., Inc., are generally valued at cost on a first-in, first-out (FIFO) method or market, if lower. A major portion of the inventories of John W. Hancock, Jr., Inc. is valued on a last-in, first-out (LIFO) method. LIFO cost is not in excess of replacement or current cost. Property, Plant and Equipment These assets are stated at cost. Depreciation expense is computed by straight-line and declining-balance methods. Maintenance and repairs are charged against operations as incurred. Major items of renewals and betterments are capitalized and depreciated over their estimated useful lives. Upon retirement or other disposition of plant and equipment, the cost and related accumulated depreciation are removed from the property and allowance accounts, and the resulting gain or loss is reflected in earnings. Income Taxes Prior to November 1, 1993, the Company provided deferred income taxes when timing differences occurred in reporting income and expenses for financial reporting and income tax reporting. Effective November 1, 1993, the Company adopted the provisions of Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS 109). Under SFAS 109, deferred income taxes are provided by the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the future tax consequences of temporary differences between tax bases and financial reporting bases of other assets and liabilities. Goodwill The excess of cost over fair value of net assets of acquired subsidiary is amortized using the straight-line method over the estimated benefit period of ten years. At October 31, 1994, accumulated amortization was $1,755,926. Cash and Cash Equivalents The Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Investments Investments are those highly liquid debt instruments with maturities in excess of three months and are valued at cost, which approximates market. Reclassifications Certain amounts included in the consolidated financial statements for 1993 have been reclassified from their original presentation to conform with the current year presentation. Revenue Recognition Revenues from sales are recognized when products are shipped to customers, except for fabrication products which are recognized by the percentage-of-completion method in accordance with industry practice. Sales to an unaffiliated customer amounted to 13% and 10% of consolidated sales for 1994 and 1992, respectively. (Note 2) Inventories If the first-in, first-out (FIFO) method of valuing inventories had been used by John W. Hancock, Jr., Inc., consolidated inventories would have been $1,611,460 greater in 1994 and $1,270,534 greater in 1993. Inventories include the following major classifications: October 31, 1994 1993 1992 Scrap steel......... $ 4,737,074 $ 2,651,005 $ 2,424,757 Melt supplies....... 1,888,830 2,034,790 2,035,380 Billets............. 3,209,030 2,400,164 4,791,501 Mill supplies....... 2,867,779 2,745,971 2,579,926 Finished steel...... 14,266,949 14,237,250 11,899,124 Total inventories... $26,969,662 $24,069,180 $23,730,688 (Note 3) Properties and Depreciation Depreciation expense for the years ended October 31, 1994, 1993 and 1992 amounted to $7,332,833, $7,295,885 and $7,133,711, respectively. Generally, the rates of depreciation range from 3.3% to 20% for buildings and improvements and 5% to 33% for machinery and equipment. Property additions in 1994, 1993 and 1992 included $19,341, $42,418 and $87,275 of interest capitalized, respectively. (Note 4) Short-Term Debt The following relates to aggregate short-term borrowings: October 31, 1994 1993 Notes payable to banks with interest ranging from 5.3625% to 5.58% for 1994......................................... $ 6,500,000 $ 6,000,000 Maximum borrowings outstanding at any month end............. $ 6,500,000 $14,000,000 Weighted average loans outstanding to banks................. $ 6,112,329 $11,816,438 Weighted average interest rates for the year................ 4.31% 3.52% Weighted average interest rates at October 31............... 5.45% 3.38%
At October 31, 1994, the Company had lines of credit with various domestic banks aggregating $37,500,000 with $31,000,000 unused. These arrangements are reviewed periodically by the lending banks for renewal, and although not legally binding, commitments have been traditionally honored. These lines of credit do not require compensating balances. (Note 5) Income Taxes The Companies file a consolidated federal income tax return. The federal income tax returns through October 31, 1990 have been examined by the Internal Revenue Service with all issues settled. The following is a reconciliation of income tax expense per consolidated statements of earnings to that computed by using the federal statutory tax rate of 34.33% for 1994, and 34% for 1993 and 1992. Year Ended October 31, 1994 1993 1992 Federal tax at the statutory rate...................... $ 4,960,886 $ 2,561,993 $ 1,409,803 Increase (decrease) in taxes resulting from: State income taxes, net of federal tax benefit....... 560,240 298,397 164,201 Other items, net..................................... 163,024 (75,222) (82,530) Income taxes per consolidated statements of earnings... $ 5,684,150 $ 2,785,168 $ 1,491,474
The components of income tax expense are as follows: Year Ended October 31, 1994 1993 1992 Current income taxes: Federal...................... $ 4,859,095 $ 2,377,778 $ 1,616,181 State........................ 913,660 370,308 207,854 Total current income taxes.... 5,772,755 2,748,086 1,824,035 Deferred income taxes: Federal...................... (28,059) 65,971 (306,615) State........................ (60,546) (28,889) (25,946) Total deferred income taxes... (88,605) 37,082 (332,561) Total income taxes............. $ 5,684,150 $ 2,785,168 $ 1,491,474 The Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes"(SFAS 109), effective November 1, 1993. The cumulative effect of adopting SFAS 109 on the Company's consolidated statements of earnings was to increase income by $3,093,940 ($.58 per share) for 1994. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for tax purposes, and operating loss and tax credit carryforwards. As of October 31, 1994, the Company had total deferred tax liabilities of $11,920,039 and deferred tax assets of $1,215,551. Deferred tax liabilities result exclusively from excess tax depreciation, and deferred tax assets result, primarily, from reserves not currently deductible of $1,001,280. There were no valuation allowances. Under the previous income tax accounting rules, deferred income taxes were provided for significant timing differences in the recognition of revenue and expense for tax and financial statement purposes. The source of these timing differences and the tax effect of each are as follows: Year Ended October 31, 1993 1992 Attributable to depreciation... $ 155,345 $(136,268) Other, net..................... (118,263) (196,293) Total deferred income taxes... $ 37,082 $(332,561) (Note 6) Long-Term Debt Long-term debt at October 31 consisted of the following: October 31, 1994 1993 Term loan collateralized by land, buildings and equipment at Roanoke plant, payable in quarterly installments of $312,500, plus interest at 8.775%. Due September 1, 1999..................................................... $ 5,937,500 $ 7,187,500 Term loan collateralized by equipment at Roanoke plant, payable in monthly installments of $104,167 beginning September 1, 1995. Interest payable monthly at 6.87%. Due September 1, 2003................................... 10,000,000 10,000,000 Term loan collateralized by equipment at Roanoke plant, payable in annual installments of $1,250,000. Interest payable monthly at 8.92%. Due November 1, 1999........................................... 7,500,000 8,750,000 Term loan collateralized by capital stock of Socar, Inc., payable in quarterly installments of $382,000. Interest payable monthly at the lowest of the Bank' s commercial prime rate plus 1/4%, the LIBOR rate plus 1.20% or the Bank's 90-day secondary certificate of deposit rate plus 11/4%, or the rate can be fixed at any time for five years at the five-year Treasury note rate plus 2%. Due June 1, 1995 ............. 1,146,000 2,674,000 Term loan collateralized by land, buildings and equipment at Roanoke plant, payable in quarterly installments of $234,375. Interest payable quarterly at the lowest of the Bank's commercial prime rate less 1/4%, the LIBOR rate plus 1% or the Bank's varied-term secondary certificate of deposit rate plus 1%. Due September 1, 1995............ 937,500 1,875,000 Total long-term debt........................................ 25,521,000 30,486,500 Less - current portion..................................... 4,791,834 4,965,500 Net long-term debt.......................................... $20,729,166 $25,521,000 Under certain of the loan agreements, the Company must maintain total liabilities, exclusive of deferred income taxes, of not greater than 1.55 times tangible net worth and maintain consolidated current assets of not less than 1.25 times consolidated current liabilities. The consolidated current assets or the property of Socar, Inc., cannot be mortgaged, pledged, used as a security interest or lien, or encumbered. Currently, consolidated tangible net worth cannot be less than $59,000,000 and consolidated working capital cannot be less than $15,000,000. Cash flow from net income, depreciation and deferred income taxes for the prior four quarters must be equal to or greater than $2,500,000. In addition, the ratio of earnings to debt service must equal at least 1.0. Annual aggregate long-term debt maturities are $4,791,834 in 1995, $3,750,000 in 1996, 1997 and 1998, and $3,437,500 in 1999. (Note 7) Commitments and Contingent Liabilities At October 31, 1994, the Company was committed for $2,361,121 for purchases of equipment and production facilities. The Company and the County of Roanoke, Va. have entered into consent agreements with the United States Environmental Protection Agency (the"EPA") for the clean-up of specific portions of a landfill site and adjacent streams near Salem, Va. One agreement pertains to a "removal action" for the removal and treatment of emission control dust, sediment and contaminated soil associated with the streams. The EPA has approved on-site stabilization and disposal. Another agreement is a "remedial action" for the removal and off-site treatment and disposal of an emission control dust pile located on the site. The Company has entered into a cost-sharing agreement with the County of Roanoke for both response actions at the landfill. It is not known whether other potentially responsible parties will pay some of the costs. Environmental engineers estimate the Company's share of the costs to be $2,000,000 which is included in liabilities. The material components of the accrual are the stream sediment removal, chemicals for treatment of the sediment, landfill construction for on-site storage, and transportation and treatment of the dust off-site. Significant assumptions underlying the estimates are cubic yards or tons of dust to be removed and treated, man hours required to remove the stream sediment and the exact location of the hazardous waste disposal site. Removal of the stream sediment could take as much as two years, while off-site disposal could take three to nine months, depending on the location. The amount of the costs expected to be recovered by insurance is uncertain, if any, but the Company is presently in discussions with its insurance carriers concerning possible recoveries. (Note 8) Common Stock and Earnings Per Share Outstanding common stock consists of 560,000 shares, issued prior to October 31, 1967, at no stated value; 750,656 shares issued subsequent to October 31, 1967, at a stated value of $.50 per share; 1,310,656 shares issued in 1981 at no stated value; 1,310,656 shares, less the equivalent of 42 fractional shares, issued in 1986 at no stated value; 1,965,963 shares, less the equivalent of 151 fractional shares, issued in 1988 at no stated value; 800 shares issued in 1989 at no stated value; 3,000 shares issued in 1992 at no stated value; 1,200 shares issued in 1993 at no stated value and 44,000 shares issued in 1994 at no stated value. During the year ended October 31, 1986, the Company increased authorized common stock from 4,000,000 shares to 10,000,000 shares. Earnings per share have been computed based on the weighted average number of shares outstanding, after giving effect to stock options exercised, of 5,326,091 for 1994, 5,304,327 for 1993, and 5,301,794 for 1992. Stock options are considered nondilutive in the computation of earnings per share as they are less than 3% of shares outstanding. (Note 9) Profit Sharing Plans The Company, including Shredded Products Corporation, RESCO Steel Products Corporation and Socar, Inc., has qualified profit sharing plans which cover substantially all employees. John W. Hancock, Jr., Inc., has an unqualified plan. Socar, Inc.'s annual contribution is discretionary while the other plans' annual contribution cannot exceed 20% of their combined earnings before income taxes. Total contributions of all Companies shall not exceed the maximum amount deductible for such year under the Internal Revenue Code and amounted to $3,343,328 for 1994, $1,680,246 for 1993 and $897,838 for 1992. (Note 10) Interest Expense Interest expense is stated net of interest income of $438,466 in 1994, $525,784 in 1993 and $615,907 in 1992. (Note 11) Stock Options Under a nonqualified stock option plan approved by the stockholders in 1989, the Company may issue 50,000 shares of unissued common stock to employees of the Company each plan year. Options for 36,000 shares were granted for 1992 and for 32,500 shares for both 1990 and 1989. These options are exerciseable for a term of five years from the date of grant. The options were granted at 85% of market value on the date of grant, and a summary follows: Option Price Per Share Shares Balance, November 1, 1991................ $11.05 - $13.60 62,000 Granted, December 17, 1991............... 6.16 36,000 Exercised................................ 6.16 (3,000) Expired or terminated.................... 11.05 (500) Balance, October 31, 1992................ 6.16 - 13.60 94,500 Granted.................................. - - Exercised................................ 6.16 (1,200) Expired or terminated.................... - - Balance, October 31, 1993................ 6.16 - 13.60 93,300 Granted.................................. - - Exercised................................ 6.16 - 13.60 (44,000) Expired or terminated.................... 11.03 - 13.60 (1,200) Balance, October 31, 1994................ 6.16 - 11.05 48,100 Shares available for grant at year end... - (Note 12) Health Benefits and Postretirement Costs Effective November 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS 106). The Company currently provides certain health care benefits for terminated employees who have completed 10 years of continuous service after age 45, and SFAS 106 requires the Company to accrue the estimated cost of such benefit payments during the years the employee provides services. The Company previously expensed the cost of these benefits as claims were incurred. SFAS 106 allows recognition of the cumulative effect of the liability in the year of adoption or the amortization of the obligation over a period of up to twenty years. The Company has elected to recognize this obligation of approximately $1,381,000 over a period of twenty years. Cash flows are not affected by implementation of this Statement, but implementation decreased net earnings from continuing operations for 1994 by approximately $152,000 ($.03 per share). The Company's postretirement benefit plan is not funded. The accrued postretirement benefit cost recognized in the balance sheet at October 31 is as follows: Accumulated postretirement benefit obligation: Retirees........................................ $ 312,000 Fully eligible plan participants................ 637,000 Other active plan participants.................. 605,000 Accumulated postretirement benefit obligation.................................... 1,554,000 Unrecognized transition obligation.............. 1,312,000 Accrued postretirement benefit cost............. $ 242,000 Net postretirement benefit cost for 1994 consisted of the following components: Service cost ............................................... $127,000 Interest cost on accumulated postretirement benefit obligation................................................ 118,000 Amortization of transition obligation....................... 69,000 Net postretirement benefit cost............................. $ 314,000 The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 13% for 1993, decreasing linearly each successive year until it reached 6.5% in 2004, after which it remains constant. A one-percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated postretirement benefit obligation by approximately $103,000 and the net postretirement benefit cost by approximately $26,000. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8% for the year ended October 31, 1994. (Note 13) Unaudited Quarterly Financial Data Summarized unaudited quarterly financial data for 1994 follows:
Three Months Ended January 31 April 30 July 31 October 31 Sales................ $47,052,752 $51,626,556 $55,914,438 $ 61,215,482 Gross earnings....... $ 6,054,117 $ 6,602,165 $ 7,658,343 $ 13,417,559 Net earnings......... $ 4,125,536 $ 1,441,627 $ 1,776,602 $ 4,516,610 Earnings per share... $ .78 $ .27 $ .33 $ .85
Summarized unaudited quarterly financial data for 1993 follows: Three Months Ended January 31 April 30 July 31 October 31 Sales................ $35,999,788 $40,975,239 $40,901,762 $49,417,589 Gross earnings....... $ 3,960,133 $ 5,458,132 $ 6,046,352 $ 7,101,045 Net earnings......... $ 517,856 $ 949,242 $ 1,183,908 $ 2,099,100 Earnings per share... $ .10 $ .18 $ .22 $ .40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Sales increased for the period 1992 through 1994. In 1992, sales improved due mainly to a significant increase in billet shipments and increased bar and fabricated products (bar joist and rebar) tons shipped, while selling prices for fabricated products plunged and bar product prices were flat. The higher billet shipments were a result of increased domestic demand and entry into the much more competitive export mar- kets. Although market conditions were little improved, shipments increased over 1991 because recession was at its worst during that year, and shipments were adversely affected as we adjusted to the market con- ditions. Shipments of fabricated products increased in spite of depressed conditions due to successful job bidding; however, selling prices suf- fered significantly in order to book a higher percentage of quotations. The significant increase in sales in 1993 was due to much improved billet shipments, increased bar and fabricated products tonnage shipped and higher selling prices for all products. Improved market conditions and demand resulted in the increased bar product shipments, while the high- er billet shipments were due to both increased export business and improved domestic demand. The improvement in merchant bar and bil- let selling prices resulted, mainly, from higher scrap steel costs prompt- ing industry-wide price increases. Even though the construction indus- try remained depressed and highly competitive, shipments of fabricated products increased slightly due to successful bidding. Selling prices for fabricated products rose due to higher raw material costs. In 1994, sales increased dramatically due to significant increases in shipments of bar and fabricated products and increased selling prices for all product class- es, while shipments of billets declined slightly. Continued improvement in business conditions and economic growth fueled demand and resulted in the increased shipments of bar products. An easing of competitive conditions within the construction industry led to the increased fabricat- ed product shipments. Billet tonnage shipped declined slightly due to a lack of export shipments, although domestic shipments improved signifi- cantly. While the export markets were much more competitive, domes- tic demand improved significantly. Selling prices for bar and fabricated products increased, mainly, as a result of higher raw material costs, but some of the increased selling prices were demand driven. The higher bil- let prices were also driven by higher raw material costs, but the increased domestic billet shipments, which bring a higher price, also contributed. In 1992, the increase in cost of sales was attributable to the increased tons shipped of all product classes, in spite of reductions in scrap steel and other material costs. Cost of sales increased in 1993 as a result of the increase in tons shipped of all product classes, together with increased costs of scrap steel. The increase in cost of sales in 1994 was due to increased tons shipped of bar and fabricated products in addition to a continued rise in scrap steel costs. In 1992, the gross profit percentage increased 1.9% to 12.0%, primarily due to higher production levels for raw steel, bar products and fabricated products which reduced unit costs for fixed expenses. Lower scrap costs also contributed to the increase in margins, even though selling prices for fabricated products were down. Gross earnings as a percentage of sales improved 1.5% to 13.5% for 1993. The increase was due to the increased selling prices for all products which more than offset the increased scrap costs. The gross profit percentage continued to increase in 1994 and finished up 2.1% at 15.6%. Higher selling prices for all prod- uct classes and the efficiencies of much improved production accounted for the higher margins in spite of a significant increase in scrap costs. For all years in the 1992 - 1994 period, the increased shipment levels at the higher gross profit margins provided the improvements in gross and net earnings. Administrative expenses increased in 1992 due to executive and man- agement compensation which increased as a result of increased production, shipment and earnings levels as all other expenses showed a net decline. The majority of the increase in administrative expenses in 1993 was attributable to executive and management compensation which increased with production, shipments and earnings. Also contributing to increased administrative expenses were higher bad debts and insurance costs. In 1994, administrative expenses increased due mainly to increased executive and management compensation, taxes, insurance, bad debts and professional fees. Interest expense declined in 1992 as a result of lower average borrowings and interest rates, even though inter- est income and capitalized interest declined to $615,907 and $87,275, respectively. Likewise, 1993 interest was decreased due to lower interest rates and average borrowings, in spite of a decline in interest income to $525,784 and less capitalized interest of $42,418. In 1994, interest expense increased due to higher interest rates, decreased interest income of $438,466 and decreased capitalized interest of $19,341, even though average borrowings were lower. Contributions to various profit sharing plans are determined as a proportion of earnings before income taxes and should normally increase and decrease with earnings. In 1992 and 1993, income tax expense as a percentage of pretax income was rela- tively constant. Income tax expense in 1994 was affected by higher tax rates and the adjustment of deferred taxes required by SFAS 109. At October 31, 1994, working capital was $34,504,420, the current ratio was 2.0 and the quick ratio was 1.1 - all very sound. Cash, investments and accounts receivable of $40,324,769 were more than adequate to pay current liabilities of $35,164,636 which is a good indication of liquidity and a healthy financial condition. Commitments for the purchase of prop- erty, plant and equipment at year end were $2,361,121 and 1995 curtail- ments of long-term debt will be $4,791,834. These obligations will affect future liquidity and working capital; however, profits and depreciation should provide adequate working capital to more than offset the effects of these items. Total long-term and short-term borrowings declined $4,465,500 during the year, and the ratio of debt to equity was .94 to 1. The percentage of long-term debt to total capital decreased from 28.8% to 22.2%. The above ratios, percentages and financial information, along with healthy net worth and strong earnings have made the Company attractive to various lenders who have expressed their confidence and willingness to provide additional financing. As a condition of our loan agreements, the real estate and equipment at the Roanoke plant and the capital stock of Socar, Inc. have been pledged as security for the loans. In addition, the terms do not allow consolidated current assets or the assets of Socar, Inc. to be pledged. However, the secured creditors are over collateralized and additional long-term fund- ing is available as mentioned above. In addition, there are capital resources available in the amount of $31,000,000, representing the unused portion of $37,500,000 in lines of credit made available to the Company by various banks. Management is of the opinion that adoption of the Clean Air Act Amendments or any other environmental concerns will not have a mate- rially adverse effect on the Company's operations, capital resources or liquidity (See Note 7). Additional anticipated future capital expenditures and costs are presently estimated to be less than $1,000,000. SFAS 115 "Accounting for Certain Investments in Debt and Equity Securities" has been enacted and will be adopted next fiscal year. The statement requires the adjustment of investments for changes in market prices and is not expected to have a material effect on the Company's financial condition and results of operations. EX-27 3 FINANCIAL DATA SCHEDULE 10-K 1994
5 The Schedule contains summary financial information extracted from the 4th Quarter Consolidated Balance Sheets and Statement of Earnings and is qualified in its entirety by reference to such financial statements. 1 YEAR OCT-31-1994 OCT-31-1994 150,036 5,333,895 34,840,838 0 26,969,662 69,669,056 123,563,334 53,088,234 140,473,510 35,164,636 20,729,166 1,330,650 0 0 71,087,019 140,473,510 215,809,228 215,809,228 182,077,044 182,077,044 17,390,336 0 1,891,263 14,450,585 5,684,150 8,766,435 0 0 3,093,940 11,860,375 2.23 2.23
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